# ADVANCED ENERGY INDUSTRIES INC (AEIS) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ADVANCED ENERGY INDUSTRIES INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/927003/000092700324000003/aeis-20231231x10k.htm
Accession: 0000927003-24-000003
Filing date: 2024-02-20
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/AEIS/
All MD&A years: /company/AEIS/mda/
Previous year: /company/AEIS/mda/fy2022/ (FY 2022)
Next year: /company/AEIS/mda/fy2024/ (FY 2024)

ITEM 7.            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements set forth below under this caption constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements” in this annual report on Form 10-K for additional factors relating to such statements and see “Risk Factors” in Part I, Item 1A for a discussion of certain risks applicable to our business, financial condition, and results of operations.

The following section discusses our results of operations for 2023 and 2022 and year-to-year comparisons between those periods.

Company Overview

Advanced Energy provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment. Many of our products enable customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.

We are organized on a global, functional basis and operate as a single segment of power electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power, which is based in Calabasas, California. The results of operations of SL Power are included in our consolidated results from the acquisition date forward. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets. See Note 2. Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.”

Business Environment and Trends

2023 Summary Results and Key Activities

For the year ended December 31, 2023, our revenue was $1,655.8 million, representing a decline of 10.3% as compared to 2022. The decline was attributable to lower revenue from our Semiconductor Equipment and Data Center Computing markets, both of which experienced a reduced demand environment starting in the fourth quarter 2022 and continued into 2023. These declines were partially offset by higher revenues in the Industrial and Medical and Telecom and Networking markets, as improved supply of critical components during 2023 enabled us to fulfill demand and reduce backlog for our products. For more details on the trends in our end markets, see “End Markets Summary and Trends” elsewhere in this Item 7.

In 2023, we reported higher operating expenses of $478.7 million, primarily attributable to $27.0 million of charges related to our restructuring initiatives which are focused on optimizing manufacturing, support operations and to a lesser extent a general workforce reduction to align to our revenue levels. These actions should largely be complete in 2024 and are expected to enable a more efficient and cost-effective operating structure.

Although we experienced a challenging demand environment related to our revenue, we achieved $212.9 million cash flow from continuing operating activities as we managed our working capital and core spending levels, resulting in a $25.4 million increase in cash flow from operating activities compared to 2022.

On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount 2.50% convertible senior notes (“Convertible Notes”) and received net proceeds of approximately $561.1 million after the discount for the initial purchasers’ fees. We intend to use the net proceeds to fund future growth, which

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may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes. See Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” and Liquidity and Capital Resources below.

Concurrent with the Convertible Notes issuance, we repurchased 0.4 million shares of common stock for $40.1 million and entered into hedge and warrant contracts with respect to our common stock (see Note 5. Stockholders’ Equity and Earnings Per Share and Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data”).

End Markets Summary and Trends

As further described below, the demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, and other factors. Entering 2024, although we are experiencing a lower demand environment, we continue to believe that the long-term market growth drivers support our long-term strategy, research and development efforts, and capital investments. However, in the short-term it is unclear how the macroeconomic conditions, including higher interest rates impacting end customer’s capital investment and potential macroeconomic weakness, will affect our customer demand and revenue.

Semiconductor Equipment Market

Beginning in the fourth quarter of 2022, the Semiconductor Equipment market entered a downturn due to a combination of unfavorable macroeconomic conditions, overcapacity in the market for memory devices, prolonged weakness in demand for consumer electronics, general semiconductor inventory consumption resulting in falling manufacturing utilization, and new U.S. export restrictions to China for certain semiconductor equipment.

During 2023, these factors continued to impact our revenue, but we were able to partially offset the market weakness by growing revenues in areas such as high voltage and service. Entering 2024, we expect the factors driving the market downturn to continue in the near-term. As mentioned above, we believe the long-term growth drivers for demand in this market will resume, due to the need for more manufacturing capacity to support growing demand for semiconductor devices and the related capital equipment.

Industrial and Medical Market

We delivered record revenue in the Industrial and Medical market in 2023. The year started with strong demand driven by customer investments in production capacity. In addition, increased supply of critical components allowed us to fulfill the higher level of customer demand and drove the record quarterly revenues in both the first and second quarter of 2023.

However, in the second half of 2023 we began to see lower demand in this market largely driven by macroeconomic factors, including higher interest rates, which has adversely impacted end customer’s capital investment. Entering 2024, we expect weaker macroeconomics condition to continue to impact our revenue in the near-term.

Data Center Computing Market

As compared to revenue levels exiting 2022, in the first half of 2023, we saw reduced revenues in the Data Center Computing market due to slowing demand in the enterprise server and storage market as customers delayed investments. Increased demand for high end computing applications, such as artificial intelligence, from some of our customers led to increased revenue in the second half of 2023. These investments can have disparate cycles, and it is not clear how quickly our enterprise server and storage customers will return to their historical level of investments.

Telecom and Networking Market

During the period, substantially improved supply of critical components allowed us to largely fulfill outstanding demand from the prior year and drove strong revenue growth in the Telecom and Networking market as compared to

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2022. However, leading companies in this market have reported end user weakness, and we expect and plan for a slower demand environment in 2024.

Results of Continuing Operations

The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 “Financial Statements and Supplementary Data” of this annual report on Form 10-K. Also included in the following analysis are measures that are not in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

The following table summarizes our Consolidated Statements of Operations and as a percentage of revenue (in thousands):

​

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[[/GREPCENT_TABLE]]

​

​

Revenue

The following tables summarize net revenue and percentages of revenue by markets (in thousands):

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Total revenue decreased from the same period in the prior year due to market downturns in the Semiconductor Equipment and Data Center Computing markets, which were partially offset by revenue increases in the Industrial and Medical and the Telecom and Networking markets driven by improved supply of certain components.

​

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Backlog

Backlog represents outstanding orders for products we expect to deliver within the next 12 months. As of December 31, 2023, our backlog was $406.8 million, which represents a decrease of $468.5 million or 53.5% compared to the $875.3 million balance as of December 31, 2022. Backlog levels have historically averaged less than one quarter of revenue. However, during the supply chain shortages backlog increased substantially due to long lead times.

Backlog at the end of 2023 returned to a normalized level and decreased from the end of 2022 primarily due to shorter lead times of our products, allowing some of our customers to substantially reduce placing orders for products that we have resumed stocking in customer-specific hubs or for targeted delivery beyond six months.

Backlog at any particular date is not necessarily indicative of actual revenue which may be generated for any succeeding period. In addition, there is uncertainty of the timing of when backlog can convert into revenue, and our customers can cancel, change, or delay product purchase commitments with little or no notice.

​

Revenue by Market

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The decrease in Semiconductor Equipment revenue was primarily due to a cyclical downturn in the semiconductor industry and the U.S. export controls restricting shipments of equipment to Chinese semiconductor customers. The revenue decline was partially mitigated by strong service revenues and growth in certain applications, such as high voltage power supplies.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Change 2023 v. 2022","\u200b"],["\u200b","\u200b","2023","","2022","","Dollar","","Percent","\u200b"],["\u200b","\u200b","(in thousands)"],["Industrial and Medical","\u200b","$","474,449","\u200b","$","426,763","\u200b","$","47,686","","11.2","%"]]
[[/GREPCENT_TABLE]]

​

The increase in Industrial and Medical revenue was primarily due to improved materials availability, relatively stable demand for our portfolio of products in the first half of the year, and incremental revenues on new design wins.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Change 2023 v. 2022","\u200b"],["\u200b","\u200b","2023","","2022","","Dollar","","Percent","\u200b"],["\u200b","\u200b","(in thousands)"],["Data Center Computing","\u200b","$","249,874","\u200b","$","327,466","\u200b","$","(77,592)","","(23.7)","%"]]
[[/GREPCENT_TABLE]]

​

The decrease in Data Center Computing revenue was due to the cyclical downturn in the data center server and storage market, partially offset by increased demand for advanced computing applications by some customers.

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,","\u200b","Change 2023 v. 2022","\u200b"],["\u200b","\u200b","2023","","2022","","Dollar","","Percent","\u200b"],["\u200b","\u200b","(in thousands)"],["Telecom and Networking","\u200b","$","187,693","\u200b","$","160,384","\u200b","$","27,309","","17.0","%"]]
[[/GREPCENT_TABLE]]

​

The increase in Telecom and Networking revenue was due to substantially improved material availability, allowing us to largely fulfill outstanding demand from the prior year.

​

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Gross Profit and Gross Margin

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The decrease in gross profit as a percentage of revenue was largely due to the decline in revenue, unfavorable product mix, and higher operating costs based on investments made in 2023, partially offset by lower premiums and related recoveries for securing critical parts.

Gross margin percentage declined year over year primarily due to unfavorable product mix. This decline was partially offset by lower premiums paid to brokers for scarce parts. Premium recoveries generate revenue but no gross profit. As a result, they are dilutive to our gross margin. Premium recoveries impacted gross margins by approximately 35 basis points in the current year, compared to approximately 140 basis points in the prior period.

Additionally, when including higher material costs not recovered, gross margin was impacted by approximately 70 basis points in the current year, compared to approximately 200 basis points in the prior period. We expect that the amount of higher material costs and related recoveries will abate as the supply chain normalizes and scarce parts become more available from original manufacturers.

Operating Expenses

The following table summarizes our operating expenses (in thousands) and as a percentage of revenue:

​

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Research and Development

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The increase in research and development was primarily driven by increased headcount and compensation costs of $9.0 million, which was partially due to the SL Power acquisition. In addition, during 2023, we incurred $2.2 million in higher program and material costs as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

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Selling, General and Administrative

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The increase in selling, general, and administrative was primarily related to higher stock-based compensation cost and the addition of SL Power, partially offset by lower employee variable compensation expense.

Amortization of Intangible Assets

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The increase in amortization was primarily driven by incremental amortization of acquired intangible assets from the SL Power acquisition. For additional information, see Note 2. Acquisitions and Note 11. Intangible Assets and Goodwill in Part II, Item 8 “Financial Statements and Supplementary Data.”

Restructuring, Asset Impairments and Other Charges

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The increase is primarily driven by the initiation of 2023 Plan for which we incurred charges of $27.0 million in 2023. We have several restructuring plans in process, including the following:

2023 Plan

In 2023, we approved a plan intended to optimize and consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align to our expenses to revenue levels (the “2023 Plan”). We expect additional charges of $1.0 million to $2.0 million to be incurred in future periods through the second quarter of 2025. We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding by June 2025.

​

2022 Plan

This plan was approved to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure. We anticipate the 2022 Plan will be substantially completed by the end of 2024.

​

For additional information, see Note 12. Restructuring, Asset Impairments, and Other Charges in Part II, Item 8 “Financial Statements and Supplementary Data.”

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Interest Income, Interest Expense, and Other Income (Expense), net

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

We experienced an increase in interest income on higher cash balances, due in part to proceeds from our issuance of Convertible Notes in the third quarter of 2023, ability to concentrate cash in investment accounts, and higher short term interest rates.

We experienced an increase in interest expense due to a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate and the issuance of our Convertible Notes. The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

Other income (expense), net consists primarily of foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items. The decrease in income between periods was primarily a result of lower unrealized foreign exchange gains and a gain in 2022 from the sale of intellectual property from a previous acquisition that did not recur in 2023.

See Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding our debt.

Income Tax Provision (Benefit)

The following table summarizes tax provision (benefit) (in thousands) and the effective tax rate for our income from continuing operations:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

Our effective tax rates differ from the U.S. federal statutory rate of 21% for 2023 and 2022, primarily due to a valuation allowance release for certain deferred tax assets in 2023 and the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations in 2022. The effective tax rate for 2023 was lower than the same periods in 2022 primarily due to a $25.6 million release of a deferred tax asset valuation allowance in 2023.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

The Organization for Economic Cooperation and Development is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%. Various countries have implemented the legislation as of January 1, 2024, and we are still evaluating the impact. As additional jurisdictions enact such legislation, our effective tax rate and cash tax payments could increase in future years.

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Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP earnings per share (“EPS”) to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non-GAAP measures to assess performance against business objectives, and make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management. The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP.

The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation, amortization of intangible assets, and long-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facility expansion and related costs, restructuring, asset impairments, and other charges, as they are not indicative of future performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments. In addition, the tax effect also includes a discrete tax benefit associated with the release of a portion of our deferred tax asset valuation allowance.

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Reconciliation of non-GAAP measure","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating expenses and operating income from continuing","\u200b","\u200b","Years Ended December 31,"],["operations, excluding certain items (in thousands)","","","2023","","2022"],["Gross profit from continuing operations, as reported","\u200b","\u200b","$","592,398","\u200b","$","675,506"],["Adjustments to gross profit:","\u200b","\u200b","","\u200b","\u200b"],["Stock-based compensation","\u200b","\u200b","","2,059","\u200b","","1,478"],["Facility expansion, relocation costs and other","\u200b","\u200b","","2,334","\u200b","","5,295"],["Acquisition-related costs","\u200b","\u200b","\u200b","238","\u200b","\u200b","(299)"],["Non-GAAP gross profit","\u200b","\u200b","","597,029","\u200b","","681,980"],["Non-GAAP gross margin","\u200b","\u200b","","36.1%","\u200b","","37.0%"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating expenses from continuing operations, as reported","\u200b","\u200b","\u200b","478,704","\u200b","\u200b","442,411"],["Adjustments:","\u200b","\u200b","","\u200b","\u200b","","\u200b"],["Amortization of intangible assets","\u200b","\u200b","","(28,254)","\u200b","","(26,114)"],["Stock-based compensation","\u200b","\u200b","","(28,942)","\u200b","","(18,371)"],["Acquisition-related costs","\u200b","\u200b","","(4,026)","\u200b","","(8,637)"],["Facility expansion, relocation costs and other","\u200b","\u200b","","(189)","\u200b","","\u2014"],["Restructuring, asset impairments, and other charges","\u200b","\u200b","","(26,977)","\u200b","","(6,814)"],["Non-GAAP operating expenses","\u200b","\u200b","\u200b","390,316","\u200b","\u200b","382,475"],["Non-GAAP operating income","\u200b","\u200b","$","206,713","\u200b","$","299,505"],["Non-GAAP operating margin","\u200b","\u200b","","12.5%","\u200b","","16.2%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Reconciliation of non-GAAP measure","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Income from continuing operations, excluding certain items","\u200b","\u200b","Years Ended December 31,"],["(in thousands, except per share amounts)","","\u200b","2023","","2022"],["Income from continuing operations, less non-controlling interest, net of income tax","\u200b","\u200b","$","130,749","\u200b","$","201,875"],["Adjustments:","\u200b","\u200b","","","\u200b"],["Amortization of intangible assets","\u200b","\u200b","","28,254","\u200b","","26,114"],["Acquisition-related costs","\u200b","\u200b","","4,264","\u200b","","8,338"],["Facility expansion, relocation costs, and other","\u200b","\u200b","","2,523","\u200b","","5,295"],["Restructuring, asset impairments, and other charges","\u200b","\u200b","","26,977","\u200b","","6,814"],["Unrealized foreign currency gain","\u200b","\u200b","\u200b","(89)","\u200b","\u200b","(7,645)"],["Acquisition-related costs and other included in other income (expense), net","\u200b","\u200b","\u200b","(1,516)","\u200b","\u200b","(8,417)"],["Tax effect of non-GAAP adjustments, including certain discrete tax benefits","\u200b","\u200b","","(31,303)","\u200b","","(3,008)"],["Non-GAAP income, net of income tax, excluding stock-based compensation","\u200b","\u200b","\u200b","159,859","\u200b","\u200b","229,366"],["Stock-based compensation, net of tax","\u200b","\u200b","\u200b","24,181","\u200b","\u200b","15,444"],["Non-GAAP income, net of income tax","\u200b","\u200b","$","184,040","\u200b","$","244,810"],["Non-GAAP diluted earnings per share","\u200b","\u200b","$","4.88","\u200b","$","6.49"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Reconciliation of non-GAAP measure","\u200b","Year Ended December 31,"],["Per share earnings excluding certain items","","2023","","2022"],["Diluted earnings per share from continuing operations, as reported","\u200b","$","3.46","\u200b","$","5.35"],["Add back:","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Per share impact of non-GAAP adjustments, net of tax","","\u200b","1.42","\u200b","\u200b","1.14"],["Non-GAAP earnings per share","\u200b","$","4.88","\u200b","$","6.49"]]
[[/GREPCENT_TABLE]]

​

Liquidity and Capital Resources

Liquidity

Adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity continue to be our available cash, investments, cash generated from operations, and available borrowing capacity under the Revolving Facility (defined in Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data”).

As of December 31, 2023, our cash and cash equivalents total $1,044.6 million, while our available funding under our Revolving Facility is $200.0 million. Additionally, we generated $212.9 million of cash flow from continuing operations in 2023. We believe our sources of liquidity will be adequate to meet anticipated debt service, share repurchase programs, and dividends. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected revenue and demand. Our capital expenditures are primarily directed towards manufacturing and operations and can materially influence our available cash for other initiatives.

In addition, we may, depending upon the number or size of additional acquisitions, seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.

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Debt

On September 12, 2023, we completed a private, unregistered offering of $575.0 million Convertible Notes and received net proceeds of approximately $561.1 million after the discount for the initial purchasers’ fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes.

The following table summarizes our borrowings (in thousands, except for interest rates).

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31, 2023"],["\u200b","\u200b","Balance","","Interest Rate"],["Convertible Notes","\u200b","$","575,000","\u200b","2.50%"],["Term Loan Facility at fixed interest rate due to interest rate swap","\u200b","\u200b","220,719","\u200b","1.17%"],["Term Loan Facility at variable interest rate","\u200b","\u200b","134,281","\u200b","6.21%"],["Total borrowings","\u200b","$","930,000","\u200b","\u200b"]]
[[/GREPCENT_TABLE]]

​

The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

As of December 31, 2023, we had $200.0 million in available funding under the Revolving Facility. The Term Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.

In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.

For more information see Note 18 Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 7. Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.”

Dividends

During 2023, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

Share Repurchases

To repurchase shares of our common stock, we periodically enter into stock repurchase agreements. The following table summarizes these repurchases:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

​

The above table reflects a $40.1 million repurchase of our common stock that was concurrent with the Convertible Notes issuance. See Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data.” At December 31, 2023, the remaining amount authorized by the Board for future share repurchases was $199.2 million with no time limitation.

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Cash Flows

A summary of our cash from operating, investing, and financing activities was as follows (in thousands):

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","Years Ended December 31,"],["\u200b","","\u200b","2023","","2022"],["Net cash from operating activities from continuing operations","\u200b","\u200b","$","212,925","\u200b","$","183,731"],["Net cash from operating activities from discontinued operations","\u200b","\u200b","","(3,988)","\u200b","","(144)"],["Net cash from operating activities","\u200b","\u200b","","208,937","\u200b","","183,587"],["Net cash from investing activities","\u200b","\u200b","","(64,751)","\u200b","","(208,272)"],["Net cash from financing activities","\u200b","\u200b","","445,684","\u200b","","(61,865)"],["Effect of currency translation on cash and cash equivalents","\u200b","\u200b","","(4,132)","\u200b","","996"],["Net change in cash and cash equivalents","\u200b","\u200b","","585,738","\u200b","","(85,554)"],["Cash and cash equivalents, beginning of period","\u200b","\u200b","","458,818","\u200b","","544,372"],["Cash and cash equivalents, end of period","\u200b","\u200b","$","1,044,556","\u200b","$","458,818"]]
[[/GREPCENT_TABLE]]

​

Net Cash From Operating Activities

Net cash from operating activities from continuing operations was $212.9 million, an increase of $29.2 million, compared to $183.7 million in the prior year. The increase is primarily due to a favorable decrease in accounts receivable and inventory. This was partially offset by a decrease in net income driven primarily by slowing market demand.

Net Cash From Investing Activities

Net cash used in investing activities in 2023 was $64.8 million, driven by the following:

[[GREPCENT_TABLE]]
[["","\u25cf","$61.0 million in purchases of property and equipment as we invested in our manufacturing footprint and capacity; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$3.7 million in purchase of long-term investments."]]
[[/GREPCENT_TABLE]]

Net cash used in investing activities in 2022 was $208.3 million, driven by the following:

[[GREPCENT_TABLE]]
[["","\u25cf","$149.4 million paid for business combinations; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$58.9 million in purchases of property and equipment as we invested in our manufacturing footprint and capacity."]]
[[/GREPCENT_TABLE]]

Net Cash From Financing Activities

Net cash provided by financing activities in 2023 was $445.7 million, driven by the following:

[[GREPCENT_TABLE]]
[["","\u25cf","$561.1 million net proceeds from issuance of long-term debt;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$74.9 million proceeds from sale of warrants;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$115.0 million payment for purchase of note hedges;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$40.0 million related to repurchases of our common stock;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$20.0 million for repayments on long-term borrowing; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$15.2 million for dividend payments."]]
[[/GREPCENT_TABLE]]

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The net cash used in financing activities in 2022 was $61.9 million, driven by the following:

[[GREPCENT_TABLE]]
[["","\u25cf","$26.6 million related to repurchases of our common stock;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$20.0 million for repayment of long-term debt; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","$15.2 million for dividend payments."]]
[[/GREPCENT_TABLE]]

Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported. Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data” describes the significant accounting policies used in the preparation of our consolidated financial statements. The accounting positions described below are significantly affected by critical accounting estimates. Such accounting positions require significant judgments, assumptions, and estimates to be used in the preparation of the consolidated financial statements. Actual results could differ materially from the amounts reported based on variability in factors affecting these statements.

Inventories

We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis. General market conditions, as well as our design activities, can cause certain products to become obsolete and we adjust our inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based on projected end-user demand, which is determined by considering historical usage, customer orders and forecast, and qualitative considerations such as market and economic conditions. The determination of projected end-user demand requires the use of estimates and assumptions related to projected unit sales for each product. Demand for our products can fluctuate significantly. A significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand.

Income Taxes

We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. Tax rate changes are reflected in the period such changes are enacted.

We assess the recoverability of our net deferred tax assets and the need for a valuation allowance on a quarterly basis. Our assessment includes several factors, including historical results and taxable income projections for each jurisdiction. The ultimate realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, we determine if we will more likely than not realize the benefits of these deductible differences.

Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity.

For more details see Note 4. Income Taxes in Part II, Item 8 “Financial Statements and Supplementary Data.”

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Business Combinations

We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. Fair values of assets acquired, and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal. Estimating fair values can be complex and subject to significant business judgment. We must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria, including assets that were not previously recorded by the acquired entity. The estimates most commonly involve intangible assets. The excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually. Pursuant to U.S. GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination.

Off-Balance Sheet Arrangements

As of December 31, 2023, we did not have any off-balance sheet arrangements pursuant to Regulation S-K.

Contractual Obligations

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations relating to income taxes, lease obligations, pension liabilities, and debt is provided in Note 4. Income Taxes, Note 14. Leases, Note 15. Employee Retirement Plans and Postretirement Benefits, and Note 18. Long-Term Debt, respectively, in Part II, Item 8 “Financial Statements and Supplementary Data.”

Recent Accounting Pronouncements

From time to time, updates to the Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.

To understand the impact of recently issued guidance from the Financial Accounting Standards Board (“FASB”) or other standards setting bodies, whether adopted or to be adopted, please review the information provided in Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data.”

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